The United States taxes on a pay-as-you-go basis. An employer withholds for employees, but freelancers, the self-employed and people with large investment income have to pay in four instalments themselves — estimated tax. Pay too little and a penalty can apply even in a year you are due a refund. We read three IRS pages.
1. You are in scope if you expect to owe $1,000 or more when you file. That is the figure for individuals, sole proprietors, partners and S corporation shareholders.
2. The due dates are 15 April, 15 June, 15 September and 15 January of the following year. The four periods are not equal in length.
3. Pay the smaller of 90% of this year's tax or 100% of last year's and you avoid the penalty.
Who has to pay
- Individuals (including sole proprietors, partners and S corporation shareholders) — if they expect to owe $1,000 or more when the return is filed
- Corporations — if they expect to owe $500 or more
Someone with a salary can instead change Form W-4 so the employer withholds more, and then need not pay estimated tax separately. Employees with side income often use this (our gloss).
When you do not have to pay — all three must hold
- You had no tax liability for the prior year
- You were a US citizen or resident alien for the whole year
- Your prior tax year covered a 12-month period
"No tax liability" means total tax was zero or you did not have to file, the IRS says. In your first year in the US, look closely at the second condition (our suggestion — we did not read the resident-alien tests this time).
Four due dates — not three months apiece
| Period the income arises | Due date | Length (our count) |
|---|---|---|
| 1 January to 31 March | 15 April | 3 months |
| 1 April to 31 May | 15 June | 2 months |
| 1 June to 31 August | 15 September | 3 months |
| 1 September to 31 December | 15 January of the following year | 4 months |
They are usually called quarterly payments, yet the second period is 2 months and the fourth is 4. Paying in April and again two months later in June is what first-timers often miss (our view). If a due date falls on a Saturday, Sunday or legal holiday, the next business day is on time. For a mailed payment, the US postmark date is the payment date.
If you do not pay enough by each due date, the IRS says, a penalty may be charged even if you are due a refund when you file. Paying weekly or fortnightly is fine — as long as enough has been paid by the end of each period.
The test for avoiding the penalty — safe harbour
The IRS states that most taxpayers avoid the penalty in either of these cases.
- They owe less than $1,000 after subtracting withholding and credits, or
- They paid at least the smaller of 90% of the tax for the current year or 100% of the tax shown on the prior year's return
| Test (our example) | Working | Minimum for the year |
|---|---|---|
| 90% of this year's expected tax of $12,000 | 12,000 × 90% | $10,800 |
| 100% of last year's tax of $8,000 | 8,000 × 100% | $8,000 |
| The smaller of the two | — | $8,000 ($2,000 each over four payments) |
The table uses our own figures. In a year when income has risen, "100% of last year's tax" becomes the test and the load is lighter — but it only avoids the penalty; the remaining $4,000 is still due when you file (our gloss). The IRS says higher-income taxpayers and farmers and fishermen have different rules; the pages we read do not give those numbers, so we have not carried them over — if your income is high, check Publication 505 or the Form 1040-ES instructions.
If income is uneven
Where income did not arrive evenly through the year, annualising it and making unequal payments can avoid or reduce the penalty. It is worked out on Form 2210 for individuals. This is the route for a freelancer whose big payment landed late in the year (our gloss).
When the penalty is waived
- A casualty, disaster or other unusual circumstance meant you did not pay, and a penalty would be inequitable
- You retired after reaching age 62 or became disabled in that year or the one before, and the underpayment was due to reasonable cause
How to figure it and pay
- Figuring — the worksheet in Form 1040-ES. Start from last year's return, adjusted for changes in your situation and in the law.
- Refiguring — if you earned more or less than expected, recalculate for the next period.
- Paying — online, through the IRS app, through your IRS online account, or by mail with Form 1040-ES.
Checklist
- ☐ Whether you will owe $1,000 or more when you file this year
- ☐ Total tax on last year's return (the 100% test)
- ☐ 15 April, 15 June, 15 September and 15 January in the calendar
- ☐ If employed, whether raising withholding on Form W-4 is simpler
- ☐ Whether your state has its own estimated tax
Questions that remain
How much is the penalty?
The pages we read do not state a rate and only direct you to Form 2210. We did not confirm the rate.
Does it apply when I sell shares at a gain?
That income has no withholding, so if the tax owed reaches $1,000 you are in scope (our reading). The gains arithmetic is in the US capital gains calculator.
What about state tax?
It is separate from federal tax and varies by state. We did not read it this time — start with whether your state has an income tax in US state taxes.
Sources
- IRS, Estimated taxes — original (Page Last Reviewed or Updated: 25-Sep-2026; checked 7 October 2026). $1,000 and $500, the three conditions for not paying, 90% and 100%, annualisation, waiver grounds (age 62), ways to pay.
- IRS, FAQ — When are quarterly estimated tax payments due? — original (02-Oct-2026). The four periods and 15 April, 15 June, 15 September, 15 January.
- IRS, Topic no. 306, Penalty for underpayment of estimated tax — original (24-Sep-2026). Pay-as-you-go, Form 2210, waiver grounds.
- Not read. Publication 505, the Form 1040-ES instructions, Form 2210 (the penalty rate), the rules for higher-income taxpayers and for farmers and fishermen, state estimated tax, resident-alien tests.
- Our arithmetic and reading. Period lengths of 3, 2, 3 and 4 months; the $10,800, $8,000 and $2,000 example; the glosses on employees and freelancers.
Where to check further
- IRS Tax Withholding Estimator — whether your withholding is enough.
- Tax brackets — US tax brackets.
Written on 7 October 2026. The rules and dates are set out from the IRS originals; the examples and glosses are ours. This is not tax advice.
